Home Pakistan China China-Pakistan embroiled in major disagreement over CPEC funding – Economic Times

China-Pakistan embroiled in major disagreement over CPEC funding – Economic Times

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NEW DELHI: China and Pakistan are believed to be involved in their most serious disagreement over the mega Belt and Road Initiative following which the annual bilateral summit of the China-Pakistan Economic Corridor (CPEC) has been delayed.

Serious disagreements have surfaced between the two countries over the Main Line 1 (ML-1) railway project and special economic zones under CPEC, ET has learnt. ML-1 is the largest CPEC project and worth $6.8 billion. China is expected to lend $6 billion of this, which Pakistan wants to borrow at a concessional interest rate of less than 3%. But China is reluctant to lend money for ML-1 as it fears that local politics will delay returns on investment for China, ET has learnt.

CPCE is governed by the Joint Cooperation Committee (JCC). It is jointly chaired by Pakistan’s minister for planning, development and special initiatives and the vice chairman of China’s National Development and Reform Commission. The first JCC meeting was held in August 2013 and the last in November 2019. The 10th JCC was scheduled for early 2020 but could not be held due to disagreement between Beijing and Islamabad.

Asad Umar, Pakistan’s minister for planning, development and special initiatives, told local media in November that the 10th JCC would be held the following month. However, sources informed that meeting could not be held yet.

China extends of concessionary and commercial loans for big projects under BRI. “China is reluctant to lend money for ML-1 because Pakistan has already sought debt relief to meet G-20 lending conditions and it is not in a position to give sovereign guarantees,” Nasir Jamal, a senior journalist in Lahore covering business and the economy, told leading Nikkei, a leading media outlet from Japan.

Andrew Small, a senior trans-Atlantic fellow with the Asia program at the German Marshall Fund, a U.S. think tank, told Nikkei “China is much more comfortable deferring payments or providing new financing than it is offering concessional rates in the first place. This approach provides Beijing with greater leverage and control even if they are willing to be very flexible at the back-end.”

Earlier this month, Pakistan Railways asked the government for 11 billion rupees ($69 million) to provide ML-1 security. It is hard for Islamabad to extend a large amount given the state of the economy and severe budgetary constraints.

The other major disagreement between Beijing and Islamabad delaying the JCC meeting relates to SEZs, sources told ET. In the second phase of CPEC scheduled for 2020 to 2025, Chinese companies are due to start producing goods in Pakistan and exporting from there.

In the past, JCCs were always held in time, and China agreed to Islamabad’s requests most of the time. There were plenty of announcements about CPEC last year, but implanting it is another matter.

Pakistan is currently renegotiating its $6 billion extended fund facility with the International Monetary Fund (IMF), which was suspended last April. The IMF reportedly will only resume the program if Pakistan does not borrow any new commercial loans, and this is one of the reasons it is looking for concessions on loans for the ML-1 project.

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